Inconvenient truths

Little more than a week after President Mauricio Macri’s state-of-the-nation address to open Congress, a couple of announcements have obliged him to take his 2017 road map back to the drawing-board — UCA Catholic University’s poverty data and INDEC statistics bureau’s February inflation figure. Both items were bad news but if the UCA report confirming a third of the population to be below the poverty line is undoubtedly the worse in the long term (especially since it shows almost 10 of the 13 million poor to be trapped in structural not cyclical poverty, thus requiring more than a return to economic growth) and negates Macri’s top priority of “zero poverty,” it is actually the inflation figure which impacts most directly on election year policies.The February inflation figure of 2.5 percent making nonsense of the official 12-17 percent annual forecast as contained in the 2017 Budget was widely attributed to sharp increases in such items as electricity billing, highway tolls, prepaid health schemes and cigarettes but it is important to note that even allowing for the above, INDEC quantified core inflation as 1.8 percent — still way ahead of the official target and the worst possible timing with the collective bargaining season off to a bad start with the teachers. In a bid to return to the more moderate inflation of some recent months, the government is postponing bus and train fare hikes indefinitely, as well as toning down the increases for gas and water charges but this only delays the inflationary impact — more months like February loom for the future until the economic team can complete the correction of relative prices from over a decade of virtually frozen public service billing while a continually high subsidy mountain works against any significant cuts in the fiscal deficit, a root cause of inflation. The unexpectedly high February cost-of-living figure also presents some difficult dilemmas for monetary policy — whether to raise interest rates to counter an inflation which hurts the purchasing-power of wages among other economic damage or lower them in order to stimulate economic growth but at the risk of higher prices. Either way the consumer revival needed for an electoral feelgood campaign stands to lose.Until these new poverty and inflation figures, the Macri government had been dismissing the general strike looming for next month as a mistimed protest against last year’s, not current problems — against the six-digit dismissals and post-devaluation price surges of early 2016 rather than the job creation and lower inflation of recent months. But the return of inflation to a potential annual 30-40 percent range and the confirmation of a poverty rooted in underemployment and job instability demolishes the government’s arguments against wage claims and employment anxieties alike. w